Monday, December 31, 2012

Beating Inflation in 2013

With a Retail Price Index of 3.0% in November 2012, your £100 from last year are worth only £97 this year. In other words, the money that you might have in your savings account is decreasing at the rate of 3% every year. If your bank account doesn't give you an interest of 3% or greater, you are actually getting poorer with the passage of time.

Let's look at some strategies to make your money work harder so that inflation can't eat it all up. Please note that all discussion is with reference to the options available in the retail market in the UK.

Earn £5 Extra Every Month

If you earn at least £1000 a month, your best first move is to open up a Halifax Reward Current Account. You just need to deposit £1000 a month---this could be your salary or an internet transfer from another account. You don't need to "hold" this money; spend it as you like. In fact, it makes sense to pay your bills from this account. The best part is that if you don't deposit £1000 in some particular month, you won't be penalized in any way---it's just that your account will not get the promised £5 for that month.

Best Regular Saver Account

If you can put aside some money every month, you must consider regular saver accounts. One of the best such account with an upper cap of £250 per month is the Regular Saver account offered by HSBC. This account requires you to have an HSBC current account first. The interest rate is either 4% or 6% depending on the type of current account you have with HSBC. Even if you don't get the preferential rate of 6%, you shouldn't worry as 4% is higher than the expected inflation rate of 3%.

Cash ISA Account

The cash ISA limit is £5,640 for the current tax year. If you can save more than £250 per month (i.e., you have filled your Regular Saver account to max capacity), you should consider putting the remaining savings in a Cash ISA account. There are various options available depending on what you are looking for. Some of these do provide an interest rate greater than 3%.

Buying Gold

Finally, buying gold is an option which shouldn't be ignored. With reliable internet sellers such as Bullion by Post, you can easily buy a gold bar in a secure and convenient manner; most authentic sellers will ship next day via Special Delivery.

A tip here is to buy a gold (or even a silver) bar with the maximum weight that you can afford. A 20 gram gold bar, for example, is always cheaper than buying two 10 gram gold bars.

You should, however, consider the downsides such as keeping the bar in a secure place and the money you lose in buying and selling gold (i.e., the overhead associated with converting it into cash). Gold should be an option only if you are interested in an investment of a longer duration (more than 5 years).

Summary

If you earn more than £1000, your first step should be to open up a Halifax Reward Current Account. If you can spare some money, you can invest up till £250 per month to get an interest rate of 4%. If you have any more money, consider filling up your Cash ISA limit. And finally, if you are still left with some cash, do consider buying gold.